A former editor for Forbes and the Financial Times, Eamonn Fingleton spent 27 years monitoring East Asian economics from a base in Tokyo. In September 1987 he issued the first of several predictions of the Tokyo banking crash and went on in "Blindside," a controversial 1995 analysis that was praised by John Kenneth Galbraith and Bill Clinton, to show that a heedless America was fast losing its formerly vaunted leadership in advanced manufacturing -- and particularly in so-called producers' goods -- to Japan.
His 1999 book "In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key to Future Prosperity" anticipated the American Internet stock crash of 2000 and offered an early warning about the abuse of new financial instruments.
In his 2008 book "In the Jaws of the Dragon: America’s Fate in the Coming Era of Chinese Hegemony," he challenged the conventional view that China is converging to Western economic and political values.
His books have been translated into French, Russian, Korean, Japanese, and Chinese. They have been read into the U.S. Senate record and named among the ten best business books of the year by Business Week and Amazon.com.

The SEC -- At Last -- Takes the Lid Off China Stock Scams

Few episodes illustrate more clearly the pig’s ear the United States has been making of globalization than the scandal of “red collar crime.” The phrase has been coined by my Forbes colleague Joshua Brown to describe a pattern of stock scams emanating from mainland China and targeting millions of unsuspecting American investors. Until recently such scams, which have been facilitated by not only the Wall Street investment banking community but the American accounting profession, have been largely overlooked by the American and British financial press. Yet, according to an analysis by TheStreet.com, American investors’ losses had already by last year totaled $34 billion.

Now finally the Securities and Exchange Commission has acted. SEC enforcement director Robert Khuzami yesterday charged the Chinese affiliates of five big accounting firms on Monday with violating securities laws because they had failed to provide requested documentation on the audits of several China-based companies under investigation for fraud.

This puts Washington and Beijing on what could turn out to be an epic collision course. Certainly, if Khuzami, a 56-year-old Lebanese-American lawyer, has the guts to follow through, we will be treated to a rare insight into where the masters of the universe really hang their hats these days.

A basic issue is that in the case of all companies listed in the United States, the SEC insists it should have access to auditing documents worldwide. Meanwhile Beijing insists with equal vehemence that Chinese auditors, including those working for affiliates of the big international firms, should not cooperate with disclosure requirements of foreign regulators. Beijing has specifically barred America’s Public Company Accounting Oversight Board, established under the Sarbanes-Oxley Act, from reviewing China-based accounting firms. From the point of view of Chinese stock scam artists, this loophole enables them to use big-name international firms locally to set their seal on accounts that would not pass the laugh test in New York or London.

Adding to the furore is the fact that, as calculated by Thomson Reuters Lipper, 24 major offshore funds that invest solely in China’s mainland-listed A shares have lost 61 percent on average since November 2007, compared with a 40 percent decline for their Chinese peers. Tempers are not likely to be calmed by the fact that foreign funds in China suffer numerous regulatory disabilities and restrictions not imposed on their Chinese competitors.

If the relevant authorities in both China and America stick to their guns, the denouement could well be a highly acrimonious financial divorce. Not the least of the consequences would be the delisting from American markets of countless major Chinese companies. This poses major question marks for U.S. investors in such megastocks as SinoPec, PetroChina, China Life, Sina, and Baidu.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.